61 N.J. Eq. 188 | New York Court of Chancery | 1901
Joseph I. Thompson died intestate in January, 1893. He was the owner of several parcels of land and, among other things, of a hotel property at Atlantic Highlands. His personal property consisted chiefly of farm stock and implements and of the furniture of the hotel.
He left four children—-‘John I. Thompson, Cornelius J. Thompson, Margaret M. Biker and Eleanor S. Benton. John I. Thompson took out’ letters of administration.
When Joseph I. Thompson died, and for some time after-
The" personalty on the farm sold for $877.19. The residue of the personalty sold for $3,109.64.
In September, 1898, a partition bill was filed. On March 39th and on April 36th, 1899, sales in the partition suit were had, from which the net sum realized was $10,583.50. Soon .afterwards the administrator presented a petition, under rule 155, 'asking for the proceeds of the land sold to be applied to the payment of the debts of the decedent. On June 17th, 1899, the First National Bank of Freehold, claiming to be one of the creditors of the estate, filed its bill against the administrator and heirs-at-law, praying that the administrator might be decreed to account for the personalty and for the proceeds of the realty in this court, instead of the orphans court. It was conceded by the counsel representing the conflicting interests of the various creditors that such an accounting would be proper, in view of the intricacy of the case, and on February 31st, 1900, .a decree was made accordingly. The administrator filed an account and a statement of claims. Exceptions were taken thereto. A hearing was had, at the same time, on the petition in the partition suit, on the answers in the administration suit and on the exceptions.
The questions requiring solution are numerous and complicated.
(1) The decedent had for many years prior to his decease conducted a hotel at the Highlands, known as Thompson’s Pavilion Hotel. After his death, apparently by consent of all the heirs, his son and administrator, John I. Thompson, conducted this same business up to, or nearly up to, the time when the property was sold. The decedent had contracted a large number of debts, and, at the time of his decease, owed (inter alia) money to the Atlantic Highlands Bank, the First National Bank of Red Bank and the Second National Bank of Red Bank. John I. Thompson, shortly thereafter, opened an account, as administrator, in the Second National Bank of Red Bank. On February'34th, 1893, he transferred, from the account standing in
On November 3d, 1893, the Second National Bank, in accordance with its agreement, put to the credit of his account the sum of $7,855.39, the proceeds of a note of $8,000, which he had presented for discount a few days before. When the bank placed this sum to his credit it charged him, however, with the amount of his father’s indebtedness ($3,555.04); and, so in fact, he got only the difference, viz., $4,200.35. He had at this time in addition a bank balance between $500 and $600. He does not appear to have made any other deposit until March, 1894, except a deposit of $125 made in January. Out of the moneys thus placed to his credit he paid the First National Bank, in addition to what he had already paid it, $496.92, and the Atlantic Highlands National Bank $727.05. He also paid other claims against his father’s estate and various debts of his own.
The note of $8,000 was subsequently reduced to $7,500, the principal now owing. The bank claims to be subrogated to the rights of the creditors whom Thompson paid out of the proceeds of the $8,000 note.
The law on the subject is entirely settled in this state. Subrogation is either legal, that is, given by the law, or it arises out of convention or contract. Legal subrogation is allowed only in eases where the person advancing money to pay the debt of a third person stands in the situation of a surety or is-compelled to pay the debt to protect his own rights. Shinn v. Budd, 1 McCart. 238; Bigelow v. Cassedy, 11 C. E. Gr. 558. Conventional subrogation results from an agreement, made-either with the debtor or creditor, that the person paying shall be subrogated. Receiver v. Wortendyke, 12 C. E. Gr. 660; Kocher v. Kocher, 11 Dick. Ch. Rep. 547. In the ease in hand, the bank did not pay any creditor. When it lent the money, it dealt with the debtor only and did not bargain, for subrogation. It lent money to pay debts of the estate, but it did not agree with the administrator that it should be substituted to the place of the creditors as against the estate. If the claim of the banks rested here, it would consequently fail. I think it is clear, however, that they are entitled to subrogation on another ground. The principle is thus stated by Mr. Sheldon (§ 206) and the text is borne out by the cases cited:
“Though creditors who have made advances or rendered services to a trust estate, must ordinarily look to the trustee personally for their payment, yet if the trustee would be entitled to reimbursements from the estate for his payment, and he is insolvent or a non-resident, equity will substitute the creditors to the rights of the trustee and allow them to. be paid directly out of the estate.”
It has also been held that if the personal assets prove insufficient and the executor has paid debts out of his own money to the value of the land, he may, if the land is ordered to be sold, retain the proceeds for his own indemnity. Livingston v. Newkirk, 3 John. Ch. 312.
These principles control the case in hand. The money was lent to John I. Thompson, who is proved to be insolvent. It was lent to him to pay the debts of the estate. To the extent that it has been rightfully used for this purpose, the banks are entitled to be subrogated to the position of the administrator. But it must be remembered that by virtue of this subrogation, it has the administrator’s right and nothing more. The question then arises, how far is the administrator entitled? In the first place, he is only entitled to reimbursement^ to the extent that he ought to have paid the claims. As the estate is insolvent it will have to be determined what dividend each unpreferred creditor is entitled to and the administrator will be entitled to reimbursement only to the extent of that dividend. In the second place, the banks can only claim such proportion of the money lent as was actually used in paying the debts of the estate. If the administrator used a part of the money in his own business, it is obvious that the banks have no claim
Where a person holding money in a fiduciary capacity mixes it with his own and draws out of the mixed fund, the court will presume that he applies his own moneys to his own debts and the moneys held in trust to the debts of the trust. This is on the principle that when a man does an act which may be rightfully performed, it will not be presumed that it was intentionally and in fact done wrongfully. Knatchbull v. Hallett, 13 Ch. Div. 693. I do not see why this rule may not be applied to the case in hand. In a sense, the money When lent, became the money of the administrator. Suit to recover it would be brought against him personally and not against him in his representative character. But as it was lent for a specific purpose and might, as I have shown, be followed, it should be followed on the same principle and in the same way that á trust fund is followed. Accordingly the master in stating the account will assume that so long as there was money in the account belonging to the administrator personally, it was that money and not the money of the bank which went to pay his individual indebtedness.
(2) I next consider the case of another class of creditors, viz., those whose debts were secured. They were mortgage creditors and those municipalities to which taxes were due. The claim of the banks as to payment made to creditors of this class is,
The principle already stated is here, too, applicable. That principle is that the banks will, in respect of payments made on account of the estate, be entitled only to such share of the fund now in court as the administrator is entitled to.
I think that as far as the personal property of the intestate is concerned, it is very plain that the administrator would have no claim upon it for reimbursement in full, on the theory that he was authorized to relieve the real estate from liens. It was plainly his duty to devote the personalty to the payment of debts; not to the payment of charges on realty which had become vested in the heirs, and which, after the expiration of a year from intestate’s death, those heirs might, at any time, alien, free from the lien of intestate’s creditors.
The claim is made, however, that, as to the real estate turned into money, the banks stand in a different position. It is said that their money having been used to reduce or pay off liens upon it and it having presumably brought, when sold, a price just so much higher, it is only equitable that the administrator, and therefore they, should have the benefit of these payments to their full extent. The argument could be more plausibly urged in a contest between the administrator and the heirs, than between the administrator and the creditors. The creditors do not claim under the heirs, but by a title paramount *to them; for the heirs take subject to the statutory lien. We must here distinguish between the debt evidenced by the bond and the encumbrance upon the land. As to the former, the administrator could pay it just as he could pay any other debt, and get a pro rata allowance. But the question is, could he properly discharge a mere lien upon real estate? He would discharge it, of course, either with the intestate’s personal estate or with his own money. He would not, as I have already said, be justified in paying out personalty for the benefit of realty; for this would be giving to the heirs the money belonging to creditors. In point
It may be argued that the creditors having a lien upon the land, under the principle stated in Haston v. Castner, to which I shall refer hereafter, may discharge other liens for the purpose of preserving their securities and thus become entitled to subrogation, just as a subsequent mortgagee who pays off prior encumbrances is entitled. This argument, if sound, does not apply to the Freehold bank for it was not a creditor of the intestate. It does not apply to the Second National Bank, for that bank did not itself pay off the liens. All it did was to lend money to the administrator on the faith of the endorsed notes.
(3) I next take up the claim of Allaire & Son for premiums. It is made in respect of insurance on the hotel property procured in 1898, five years after intestate’s death. The hotel premiums' for that year amounted to $673:96; $273.96 were paid in cash and a note of $400 was given by the heirs for the balance. This note was endorsed by Thompson as administrator.
(4) The next claim to be considered is that of Sarah Thompson. Sarah and Emeline, sisters of intestate, had, with some intermissions, from 1853 down to the time of his death, acted as housekeepers in the hotel. They put in under oath a joint claim amounting to upwards of $20,000. Emeline died in 1894. In January, 1895, Sarah, and the four children of the intestate, entered into an agreement under seal by which it was stipulated that as a settlement and compromise of the claim which she had filed against the estate, said children would pay her annually thereafter, during her life, the sum of $600. The question to be considered is, what is the effect-of this paper? The insistment is that it operated to release the heirs, but not the administrator, because he was not, as such, a party to it. The agreement purports to have been made by and between Sarah Thompson of the first part and John, I. Thompson, Cornelius J. Thompson, Eleanor I. Benton- and Matilda Riker of the second. It is signed and sealed by all of them. John I. Thompson, as administrator, was not, in express terms, a party. After reciting that she had filed a claim against the estate, which was not admitted by the parties of the second part, “who are the next of kin and heirs-at-law of the said Joseph I. Thompson, deceased," and that the parties have mutually agreed “to a settlement and compromise of the said alleged claim," the instrument proceeds as follows:
“Now* therefore, the party of the first part for herself, her heirs, executors, administrators and assigns hereby agrees to accept and does accept in full settlement, payment and discharge of all demands, claim and claims she has and claims to have against the estate of the said Joseph I.*199 Thompson, his heirs or administrators, by reason of the said services, or otherwise, the sum of $600 heretofore received by her from said heirs, and the further sum of $600 annually during the lifetime of the said party of the first part, payable in equal quarterly payments on the first days of January, April, July and October, in each year, for and during the lifetime of the said Sarah Thompson, party of the first part.”
Then follows an express covenant by the parties of the second part to make these payments. It will thus be seen that we are dealing with a claim duly presented and verified, and a subsequent “settlement and compromise” of it.
It is therein declared that Sarah accepted the annuity in full settlement of all claim “against the estate of Joseph Thompson, his heirs or administrators.” It cannot be denied that the covenant to release is good as against the heirs. Smith v. Emery, 7 Halst. 61; National Bank at Dover v. Segur, 10 Vr. 173. But the question is whether it operates as a release in favor of the administrator. I think it does. It is founded on a valuable consideration, a considerable portion of which had, at the time of Sarah’s death in the summer of 1900, been paid.
The general rule is that in the case of deeds and other specialties, inter partes, a third person, a stranger to the deed, cannot sue thereon, although the covenant be made expressly for his advantage (Chit. Cont. (11th Am. ed.) 77), but this rule has its exceptions. In National Bank, at Dover v. Segur, supra, it was held that a third person, not a party, might enforce a covenant made for his benefit if it clearly appeared on the face of the instrument that it was the intention to give him the right to sue. It was conceded that, on the authorities, there must be something more than the covenant itself to evidence this right. Chief-Justice Beasley said that the rule that the mere fact that the covenant, made in terms, with a person not a party, did not of itself manifest an intention to confer the right, was entirely technical; that it rested more upon authority than right reason, and that it should not be pushed beyond the very letter of the eases to which it was applied.
How John I. Thompson was a party to the instrument in question, but was not, in so many words, a party in his character of administrator. The claim, however, which was being settled'
I was referred to the case of Shipman v. Lord, 13 Dick. Ch. Rep. 385, where a discharge of claims was held not to include the discharge of a security. The obvious difference between that case and this is, that in that case the court could find no clear evidence of an intention to relinquish the Burnham agreement, whereas, in the 'case at bar, the instrument, in plain language, releases the estate and the administrator of the estate, in consideration of the unqualified covenant on the part of the four heirs (liable only, without the covenant, to the extent of the lands descended) to pay $600 annually during the life of the covenantee. I think, therefore, that the estate is discharged.
(5) I next take up the claim of Wade T. Little. The objection against this claim is that it is barred by the statute of limitations. Mr. Little was the manager of intestate’s hotel. His claim is for services rendered in that capacity from April 1st, 1882, to January 1st, 1893. He gives credit for payments on account, made as late as the year 1892. He presented his claim under oath to the administrator in October, 1893, before the decree barring creditors was entered (April 28th, 1894) and, .as his evidence shows, before the rule to limit creditors expired (October 26th, 1893). He recovered judgment by default for $6,167.48 against the administrator on February 10th, 1900. The administration suit was not begun until June 17th, 1899.
The rule, so far at least as it applies to partition, appears to be found in section 20 of the Sales of Land act (Gen. Stat. p. 2984), which provides that
“In all suits in the court of chancery for the partition or sale of lands, where the personal estate of the ancestor, from whom the said lands descended, is insufficient to pay his just debts, it shall be lawful for the chancellor to direct such lands to be sold, freed from the lien of such debts and to make such order touching the disposition of the proceeds of sale as may be necessary for the ascertainment and payment of such deficiency thereout, before the distribution of the fund.”
Section 77 of the Orphans Court act (Gen Stat. p. 2878), provides that where lands are sold by order of the orphans court, on the application of the personal representative, the deed of conveyance shall vest in the purchaser all the estate that the testator 'or intestate was seized of at the time of his .death, if the order he obtained within one year thereafter, and if the order be not obtained within that time, then the conveyance shall vest in the purchaser all.the estate that the heirs or devisees of the testator •or intestate were seized of at the time of the making of the said ■order.
The question then is this, where the administrator is unwilling to plead the statute, must he distribute the personalty according to one rule and the realty according to another? It seems to me that he must distribute both species of assets in th'e same way. If the creditor is entitled to the one, he is also, in the same measure, entitled to the other. Sections 81 and 92 of the Orphans Court act provide that the estate, real and personal, in case the same shall be insufficient to pay all his or her debts, shall be distributed among his or her creditors, in proportion to the sums that shall be due to them respectively. The only exception is that the debts which by the act are made preferred shall be first paid. There is in these provisions no hint that the creditor entitled to a share of the personalty may stand in a different position as to the realty. The very fact that it is the executor or administrator on whom is east the duty of distribution, militates against the notion that the distinction exists. The provisions of the Orphans Court act, from section 70 to section 94-, treat the fund derived from the sale of the personal and real assets as a blended fund, and the only direction is to pay debts out of this fund. Except in the case of insolvent estates it is for the executor or administrator alone to say what claims he will allow. If he pays claims that he ought not to-have paid, the proper remedy of the legatee, devisee or distributee is to except to their allowance when he presents his account.
(6) The claim of French & Company is next to be considered. This firm issued an attachment against Margaret Riker and Eleanor Benton, two of the heirs of Joseph I. Thompson, after the decree for the sale of the land in the partition proceeding January 24th, 1899, and before the sale (April 26th, 1899). The question is whether this attachment is a prior lien upon the proceeds of sale. I think it is. Bockover v. Ayres, 7 C. E. Gr. 13, is a direct authority on this point. It was there held that a judgment against a devisee is unaffected by a sale and conveyance under an order of the orphans court for the payment of testator’s debts and that the purchaser thereunder takes the
(7) I must next consider who are entitled to distribution. The intestate died in January, 1893. An order to limit creditors was made January 26th, 1893. A decree barring creditors was made April 28th, 1894. The only other steps which the admin
It is well settled that the court of chancery has jurisdiction-over the administration of estates concurrent with the orphans-court (Coddington v. Bispham, 9 Stew. Eg. 575), although it will not ordinarily interfere with the jurisdiction of that court, unless for some special cause. Frey v. Demarest, 1 C. E. Cr. 236; Rutherford v. Alyea, 9 Dick. Ch. Rep. 412. Here it is evident that a special cause exists in the very complicated situation. In Coddington v. Bispham, Chief-Justice Depue, after stating that whenever a bill is filed against executors, by a creditor or legatee, touching the administration of the estate, the suit is for the benefit of all parties and the court may
The former rule was that only those creditors who exhibited their claims, under oath, within the time limited by the order of the orphans court, would be permitted to participate (Gould v. Tingley, 1 C. E. Gr. 501; Lewis v. Champion, 13 Stew. Eq. 61); such exhibition having been made by statute a condition on which the title of the creditor to share in the fund was to depend. Van Dyke v. Chandler, 5 Halst. 58. But the act of 1890 (Gen. Stat. p. 2408; P. L. of 1898 p. 739 § 68) seems to have modified this rule. It provides that if an executor or administrator, in good faith, pay any claim not presented under oath, and it*is proven that the claim is a just one, the executor shall have allowance for it, if there be sufficient estate to pay the debts of equal degree in full, and if the estate is not sufficient,
“then the said executor or the administrator shall be allowed for the pro rata amount such creditor would have been entitled to receive if the said claim or demand had been presented to such executor or administrator duly verified.”
The creditor must be paid in full, if the estate be solvent. If the provision for the payment of a pro rata amount does not apply to the case of insolvent estates, it is meaningless. The question then arises as to the limit of time within which the executor or the administrator is permitted to make payment of claims not verified by oath. As the statute itself prescribes no limit, it can only be found in the nature of the proceeding itself. He would seem to have power to .pay, at least up to the time that he, by application in writing, under section 82 or 91 of the former, or section 99 or 109 of the present act, represents the estate, real and personal, to be insufficient to pay its debts.
By the act of 1893 (Gen. Stat. p. 2414 § 250; P. L. of 1898 p. 756 § 112), the orphans court is empowered, on the application of any creditor of an insolvent estate, at any time before
There should be a reference to a master to report (1) the amount of money applicable to the payment of claims, (2) the claims duly verified and presented to the administrator before the expiration of the rule to limit creditors, it being the time fixed by this rule and not the date of the decree barring •creditors that is controlling (Young v. Young, 16 Vr. 197); (3) the claims against the decedent’s estate which were not presented under oath, but which, being just claims against the •estate, the administrator actually paid; (4) the claims (if any), being just claims against the estate, not included in the foregoing category, which were presented in compliance with the order of this court; (5) the claims against the heirs, which, because they became liens upon their shares of the real estate before the partition sale, are entitled to precedence; (6) the ■creditors who, on the principles hereinbefore stated, are entitled to be subrogated to the position of the administrator and the .amounts in respect of which they are entitled to subrogation; (?) what money advanced by creditors was used to pay the •decedent’s debts. On this reference the master may use the testimony taken in the cause. If any further questions arise, •or remain undisposed of, they may be brought to my attention •on the coming in of the report.